Creative Crates Co. produces wooden crates used for shipping products by ocean liner. In 2014, Creative incurred the following costs.

Wood used in crate production $54,000 Nails (considered insignifi cant and a variable expense) $ 350 Direct labor $38,000 Utilities for the plant:

$1,500 each month, plus $0.40 for each kilowatt-hour used each month Rent expense for the plant for the year $21,400 Assume Creative used an average 500 kilowatt-hours each month over the past year.

Instructions

(a) What is Creative’s total manufacturing cost if it uses a variable costing approach?

(b) What is Creative’s total manufacturing cost if it uses an absorption costing approach?

(c) What accounts for the difference in manufacturing costs between these two costing approaches?AppendixLO1